Carlyle Unit Fails to Meet Some Margin Calls

Carlyle Capital Corporation (CCC), an affiliate of private equity firm Carlyle Group, said on Thursday it had not been able to meet some margin calls and had received a notice of default.

CCC, which invests in fixed-income securities, said it had received margin calls, a demand for extra collateral to cover its market positions, totaling more than $37 million from seven financing parties on Wednesday, and was unable to meet the calls for four of the parties.

CCC, which listed on the Amsterdam exchange last July, said it expected to receive at least one additional default notice from the group of four counterparties. CCC invests in products including investment grade mortgage-backed securities.

Mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac , like those traded by CCC, spreads widened against U.S. government debt for a fourth day on Wednesday, pushing some yields to their cheapest levels in at least two decades.

MBS are seen as having little credit risk, but as banks and other large investors are shedding riskier debt, they are asking dealers with already bloated inventories to buy their holdings.

CCC, which has a market value of $0.6 billion, said it was able to meet margin calls and collateral requirements totaling more than $60 million between Feb. 28 and March 5.

"The last few days have created a market environment where the repo counterparties' margin prices for our AAA-rated U.S. government agency floating-rate capped securities issued by Fannie Mae and Freddie Mac are not representative of the underlying recoverable value of these securities," CCC said.

The difference between the counterparties' margin prices and underlying value of the securities created instability and variability in CCC's repo financing arrangements, CCC said.

CCC shares were down 1.7 percent at $11.80, but only 1,000 shares had changed hands.

On Feb. 27, CCC had a $21.7 billion investment portfolio of AAA-rated floating-rate capped U.S. mortgage-backed securities issued by Fannie Mae and Freddie Mac, CCC said last month.

CCC said on Feb. 28, when it reported a 2007 net profit of $16.8 million, Carlyle Group had agreed to increase an unsecured revolving credit facility to $150 million from $100 million.

CCC said that since the liquidity crisis in global fixed income markets started in August, it had sold almost $1 billion in assets to improve liquidity and reduce leverage.

The company has reported a $34 million loss for the third quarter of 2007 due to credit market turmoil, and decided last month not pay out a dividend for the fourth quarter.

CCC raised $345.5 million by issuing 18.2 million shares at $19 each last year. Its shares have fallen since its listing and closed at $12 on Wednesday, after hitting an all-time low at $8 last November.